Shine Bright Company has three product lines: D, E, and F. The following information is available:

-Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming Shine Bright Company drops product line F and rents the space formerly used to produce product F for $17,000 per year, what affect will this have on operating income?

Question

Shine Bright Company has three product lines: D, E, and F. The following information is available:
 
-Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming Shine Bright Company drops product line F and rents the space formerly used to produce product F for $17,000 per year, what affect will this have on operating income?

Quizplus · Accepted Answer

Dropping product line F and renting the space for $17,000 per year increases operating income by $3,000, indicating that the loss from product F was $14,000 ($17,000 rent income - $14,000 loss avoided = $3,000 increase in operating income).

Shine Bright Company Has Three Product Lines: D, E, and F